Everyone general knows that there is one major tax deduction that every homeowner wants to claim on a personal tax return, it is the home mortgage interest. In fact, it is the second biggest federal tax expenditure, projected to be valued at $75 billion for fiscal year 2016 (the federal government’s fiscal year ends on September 30), according to the President Obama’s 2016 budget released back on February 2, 2015. However, the dirty little secret is that there are limitations on the home mortgage interest.
The first limitation is that to claim the mortgage interest deduction is that the mortgage interest has to be related to a person ‘s primary residence (if the real estate is a rental, then of course the mortgage interest is allowed against gross rental income, with no limitations). It is interesting to note that the federal tax code also allows the mortgage interest deduction to apply not just to a person’s primary residence, but to include “1 other residence” or a second residency. Thusly a person could mortgage interest on two primary residencies (but no more).
A second restriction is that the mortgage balance on the “acquisition debt” or purchase of a primary (and/or second) residency is $1,000,000. That is if the mortgage principal balance on the purchase of a “qualified residence” more than $1,000,00 (even if the original mortgage was refinanced with still such a high principal balance), then the mortgage interest is limited. In addition if a home equity loan (which another mortgage taken out, based on the equity and/or value if a home) to do other things (e.g. Pay for college, a holiday, paying off credit cards and/or other debt), there is limitation of claiming interest on such a home equity loan, which is $100,000. Thusly there is a total limitation of mortgage interest on a “qualified residence” of $1,100,000.
So if you have such high principal balance on your mortgages on your primary (and/or secondary) residences, please let us know at email@example.com, and we would more than happy to see how these mortgage interest limitations would apply to you.